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Using Rental Income to Qualify for a Mortgage

In today's video Brendan Stoneman of Re/Max Kelowna sits down with Jewels Ferris of Canadian Mortgage Experts to discuss how you can use rental income from a basement suite or carriage home to qualify for the mortgage. Does it matter, in the eyes of the lender, if the suite is legal or illegal? Can rental income from short term or vacation rentals help as well? Do certain lenders calculate this rental income differently than others? Watch this short video to find out!

Here's the Transcript of the Video:

BRENDAN - Hi there, this is Brendan Stoneman with RE/MAX Kelowna. I'm sitting down with Jewels Ferris, mortgage broker with Canadian Mortgage Experts. So now as housing prices rise in the Okanagan area, I'm finding more and more buyers are really leaning heavily on rental suites, just to help with some of the financing costs. Just wanted to chat with you about using rental income to help buy a property and how that works.

JEWELS - Yeah, definitely. I feel like right now, especially with our housing prices increasing, and therefore mortgage payments increasing as well, it's really helpful to have a mortgage helper with that basement suite to help offset those costs. So, I'm certainly can help you to qualify. There's a couple of different ways that we can calculate the rental income, depending on which lender we go with. The banks typically use what's called a 50% add back, and so that rental income calculation, without going into too much detail, helps you to qualify for about 8% more of a purchase price. So, it helps, but not a lot. As a mortgage broker we have access to lenders that will do what's called an 80% offset of the rental income, and that calculates into about a 30% higher purchase price than you would have without it. So substantially helping what you can qualify for.

BRENDAN - Yeah, so now, is there any difference between a home that's got a legal suite versus a suite that's not legal in how they recognize that income?

JEWELS - In BC no, if it's legal or illegal, we still use the same rental calculations to qualify the client. The most important thing is that it's self-contained, has a separate entrance, a kitchen, a bathroom, that sort of thing. But a lot of properties have in-law suites that aren't legal, yeah.

BRENDAN - Now, what about obviously a bit of an emerging trend, with people turning to short-term rentals Airbnb's that sort of thing, how does that kind of I guess rental revenue, factor into qualifying?

JEWELS - So we can't use that rental income to help clients qualify, it has to be actually a long-term tenant. So the lenders are looking for a 12 month lease agreement.

BRENDAN - Okay, so then in this situation, obviously working with a mortgage broker would have a ton of benefits in helping clients buy a property if it does have a rental suite in it.